It’s unfortunate that so few parents do, he said, because a main benefit of a 529 fund is that families can attain investment returns, rather than letting cash sit in a low-interest checking or savings account. Many states also offer a tax break to savers.
Four 529 plans — offered by Illinois, Virginia, Nevada and Utah — earned the top, or gold, ranking because of their “low costs, strong stewardship and exceptional investment options,” Morningstar said. All four received the highest ranking last year as well.
Twenty-seven plans rated either silver or bronze, suggesting they have desirable features but also some room for improvement.
Twenty-six plans earned “neutral” ratings, which means they are adequate and may still be good choices for some families if their state offers a tax break. Neutral plans generally don’t have major flaws but also don’t stand out in any way, said Leo Acheson, associate director of multiasset and alternative strategies at Morningstar.
Five plans — Arkansas’ GIFT College Investing Plan, the Florida 529 Savings Plan, Nebraska’s TD Ameritrade 529 College Savings, New Jersey’s Franklin Templeton 529 College Savings and North Dakota’s College SAVE — received negative ratings because they lack compelling features and have at least one flaw, like high fees, that make them poor choices. Four of the plans were downgraded from neutral last year.
Participants who invest in plans with negative ratings, Mr. Acheson said, should consider moving their money to a higher-rated plan.
Two plans received upgrades from last year’s ratings. The Oregon College Savings plan was bumped to bronze from neutral after hiring a new program manager, overhauling its investment lineup and tweaking the “glide path” — the shift of stock investments to bonds as college approaches — for its age-based portfolios. The transition, which previously occurred in steps, is now more gradual, reducing the risk that the change will happen at an inopportune time in the market, Mr. Acheson said.